Chapter One - Trinity



TEST BANK

Chapter One

Introduction

Multiple Choice

1. The Orange County, California bankruptcy was largely due to the Treasurer’s use of

a. derivatives.

b. Mortgage-backed securities.

c. repurchase agreements.

d. zero coupon bonds.

ANSWER: C

2. All of the following are true regarding futures contracts except

a. they are marked to market.

b. they require payment of a performance bond.

c. they are a legally enforceable promise.

d. they are regulated by the SEC.

ANSWER: D

3. A security giving you the right to sell is a

a. put option.

b. call option.

c. short futures contract.

d. long futures contract.

ANSWER: A

4. A forward contract is most similar to a

a. futures contract.

b. call option.

c. put option.

d. debt security.

ANSWER: A

5. A person who combines derivatives with a business risk is a __________.

a. speculator

b. hedger

c. spreader

d. trader

ANSWER: B

6. Which of the following is not a principal category of derivative asset?

a. options

b. futures

c. straddles

d. swaps

ANSWER: C

7. Finance is sometimes called

a. the study of arbitrage.

b. applied accounting.

c. behavioral economics.

d. mathematical science.

ANSWER: A

8. Derivative use includes all of the following except

a. income generation.

b. long-term capital appreciation.

c. speculation.

d. risk management.

ANSWER: B

9. Writing an option refers to

a. the establishment of a new position.

b. the sale of an existing position.

c. the creation and sale of a position.

d. the purchase of an existing position.

ANSWER: C

10. Futures contracts trade on all of the following except ___________.

a. silver

b. the weather

c. live cattle

d. land

ANSWER: D

Statistical Appendix

Multiple Choice

1. An observation whose value changes is

a. a random variable.

b. discrete.

c. continuous.

d. a statistic.

ANSWER: A

2. A population with well-known characteristics is a __________.

a. statistic

b. sample

c. distribution

d. sample statistic

ANSWER: C

3. All of the following are measures of central tendency except _________.

a. mean

b. standard deviation

c. mode

d. median

ANSWER: B

4. The square of the standard deviation is the ___________.

a. variance

b. sigma

c. mode

d. skewness

ANSWER: A

5. About __% of the area under a normal distribution lies within two standard deviations of the mean.

a. 65%

b. 75%

c. 85%

d. 95%

ANSWER: D

6. Volatility is most closely associated with

a. the median.

b. the central limit theorem.

c. dispersion.

d. central tendency.

ANSWER: C

7. A distribution showing skewness is

a. not symmetric.

b. normal.

c. uniform.

d. triangular.

ANSWER: A

8. A standard normal distribution has

a. a mean of zero.

b. a mean of one.

c. a mean equal to the standard deviation.

d. a mean equal to the variance.

ANSWER: A

9. Two variables are independent if

a. they come from different distributions.

b. their correlation coefficient is negative.

c. their correlation coefficient is positive.

d. their correlation coefficient is zero.

ANSWER: D

10. Which of the following is true?

a. The correlation coefficient is always positive.

b. The absolute value of the correlation coefficient is always less than one.

c. Independent variables have a correlation coefficient not statistically different from zero.

d. Correlated variables are usually inversely related.

ANSWER:C

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